Convention-goers lined the walls during the leadoff technology seminar at National Automatic Merchandising Association's OneShow in Las Vegas, signaling the largest turnout in years. The two-part session, moderated by Dr. Michael Kasavana of Michigan State University (E. Lansing), explored how vending operations could leverage technology. The right technology will give a vending operator a competitive advantage through improved productivity and enhanced profitability, according Kasavana, NAMA endowed professor at MSU's School of Hospitality Business.

The first part of Kasavana's seminar, covered in the June issue, examined the latest capabilities available to the vending industry and how to plan for implementing them. This month, we cover the second portion of the technology seminar, which was devoted to developments in payment systems and interoperability among vending-related applications and services.

The Part 2 panelists were Anant Agrawal of Cantaloupe Systems, Michael Lawlor of USA Technologies, Chris Lilly of Best Vendors, who chairs NAMA's Vending Data Interchange committee, and Chuck Reed of MEI. Reed led off.

"If your machines can take only $1 bills, you're missing sales," Reed warned. "The consumer must have the means to make a purchase. There are problems with 'changer starvation,' of course; how many 'bill breakers' do you have on location, and how many of your changers now pay back $1 coins?"

These are important questions, Reed said, because despite news stories reporting "the demise of cash -- again," the fact is that the amount of cash circulating today has increased. He said that his 20-year-old daughter is ready for the demise of cash, and is participating in it; but his 70-year-old parents are not.

At present, the industry veteran reported, cash is used for about 50% of small transactions; debit and credit instruments combined represent about 30%. "You can't force a patron to use one or the other," he reminded the audience. "Look in your wallet: how many $1, $5, $10 and $20 bills have you got, and how much loose coin are you carrying? Don't limit your customers' options."

Photo | STANDING ROOM ONLY: Convention-goers lined the walls during leadoff technology seminar at the National Automatic Merchandising Association's OneShow in Las Vegas. The two-part session, moderated by Dr. Michael Kasavana of Michigan State University (E. Lansing), began with a panel session on leveraging new technology to improve productivity, gain a competitive edge and enhance profitability, and concluded with another on developments in cashless payment technology in vending.

A tool for expanding those options is the bill recycler, a device that works in conjunction with a suitable bill validator that accepts both $1 bills and a larger denomination, and a coin mechanism with a change dispenser. Singles inserted as payment can replenish a reserve. When the higher-value note is inserted and change of more than $1 is to be dispensed, the recycler pays back singles from this reserve.

"For vend prices below $1, you may not need a recycler," Reed said. "But for higher prices, you do." And a machine's ability to accept a higher-value note can encourage multiple sales, he added. "To a 'soccer mom' buying three sports drinks, it's not a $1.50 vend -- it's $4.50!

"When you limit the highest-value payment option to a $1 bill, you actually can graph the loss of sales against the vend price," he reported. "A machine with a bill validator accepting only $5 notes showed a 12% sales lift, compared to its performance when it accepted only $1s." Adding the option to pay by credit card provides an approximately equivalent benefit.

"The ideal is to take anything that the customer wants to use," Reed emphasized. "Will NFC win out? Will 'the Cloud' win out? Time will tell; but we think that, today, 60% of machines in the field need recyclers." In some locations with inherent security problems, like hotels, cashless is better; but in most sites, sales will benefit if patrons can pay with the widest possible range of currency denominations.

Cantaloupe's Agrawal approached the question from a different direction: the ubiquity of cellular telephones, and their increasing sophistication. He reported that, in 2010, there were 60 million smartphones in use, representing about 20% of all mobile phones in the field. In 2011, the number had grown to 90 million, and it's projected to exceed 100 million this year. By 2013, there may be 150 million smartphones in consumers' hands, or about half of all mobile phones.

"All manufacturers and service providers want to make this happen," Agrawal emphasized. "They want to add value to their mobile offerings by enabling customers to do more with them: find a retailer, buy online ... and the next step: use the phone as a 'wallet.' What's in your wallet? Cards and cash. Now you can digitize those things. And you can receive a coupon from the retailer you just searched.

"People will make more and more use of these features," the speaker predicted. "I've always thought that vending would be the leader in mobile payment, and maybe it will be."

Cantaloupe's Seed system includes cashless payment capability that can accommodate emerging mobile payment media like Google Wallet, ISIS (a collaborative effort among cellular carriers and the leading card networks), and other well-financed "m-commerce" ventures.

Seed's primary use has been to help operators manage their businesses more knowledgeably through remote machine monitoring; it does this through "the Cloud," linking individual machines to a server that, in turn, administers a secure website for the operator-subscriber.

That wireless network also can link to payment processors, making it simple and straightforward for Cantaloupe's operator clients to add cashless payment capability to their Seed-equipped machines, Agrawal pointed out. And, since the card reader can accommodate contactless proximity cards, it also can communicate with NFC-enabled smartphones. Adding Bluetooth, as the popularity of Bluetooth-based payment systems grows, also is simple and straightforward.

The Cantaloupe Systems principal envisions a not-so-distant future in which someone can tell his or her smartphone, "I want a Mountain Dew," and the instrument will display vending machines and other retail outlets in the vicinity. The thirsty consumer will go to the nearest machine, tap the phone on the card reader, and receive the drink -- plus loyalty points and a discount on a Frito-Lay snack.

"This is the future," Agrawal predicted. "We're not there today, but you need to buy technology that will support that future when it arrives." Operator support for these emerging mobile commerce solutions will help speed their emergence and adoption.

The effect of tighter government regulation of issuers of debit cards has been a hot topic of late, and Michael Lawlor of USA Technologies offered an overview of the situation as it was in late April.

"There has been a good deal of talk about interchange fees and the Durbin Amendment [to the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act] -- but card sales through vending machines continue to increase," Lawlor reported.

USA Technologies maintains a knowledge base that keeps track of overall card sales through ePort-equipped vending machines; at the time of the 2012 OneShow, there were almost 57,000 ePorts on venders in the field. Across all locations, the expert panelist reported, card transactions represented from 14% to 48% of sales through these machines (the average was 27%). Analyzed by vend price, 21% of card sales were for products costing less than $1, and 34% for items priced above $2. Operators will need to raise vend prices, he predicted, and should keep in mind that consumers are more likely to choose the cashless option for higher-ticket sales, if that option is available to them.

The USAT knowledge base also reveals that card use increases as patrons in a location become familiar with the capability, Lawlor said. Card sales for a machine that has offered ePort card acceptance for less than one year average $1,970, he said, but that figure increases to an average $3,615 over time; card use increases from an initial 23% to more than 30%. "In educational institutions, usage is even higher; in healthcare locations, it's initially low, but eventually high," he added.

While the Durbin Amendment has impacted the use of MasterCard debit cards (virtually eliminated in vending, at present), card payments through vending machines overall have increased, Lawlor reported. "Consumers carry multiple cards," he pointed out, so someone who won't use a particular debit card almost always has other cashless payment choices. "And when they use cards rather than cash, they spend an average 30% more."

With today's higher fees for processing lower-value transactions, merchants can implement two-tier pricing to recover the additional cost, the speaker explained. Most card issuers forbid imposing a surcharge for card use, but all permit the retailer to offer a discount for cash. "So the listed price is the price for a card purchase, but you can charge less for a cash sale," he said.

This is worth doing. "We've found that sales actually increase when two-tier pricing is introduced," the speaker continued. "Consumers don't care; they'll continue to use their cards for convenience."

With the ongoing introduction of enhancements such as loyalty programs, Lawlor concluded, "we expect card sales to keep increasing for the rest of 2012."

Wrapping up the presentation was Chris Lilly of Best Vendors, who chairs NAMA's Vending Data Interchange Committee. The VDI project was designed to establish standards for devices that must communicate with one another; the initial objective was to ensure that systems developed by different suppliers to do similar things will be interoperable, and the ultimate goal is an environment in which different systems that use the same data for different things can share and exchange that data. The VDI committee develops standards that manufacturers, software developers and service providers can adopt.

"Most of you are not software engineers," Lilly said, "but you want your systems to work together, to pass 'messages' back and forth." The VDI standards describe protocols for those systems.

Lilly reported that the first phase, a standard for DEX messaging among systems from different suppliers, now has been completed; the next stage, which addresses "alert" messages sent from machines, is about three months away from completion (as VT goes to press). Standards for point-of-sale data ("master data") and cashless system messaging are under development; and a device portability standard is expected to be available to early adopters in six months.

"Open" information systems speed and simplify the diffusion of innovation by building confidence that new technology purchased today will not be rendered obsolete tomorrow, as it would be if it used proprietary protocols and formats. It is in everyone's interest to work toward the industrywide adoption of VDI, Lilly concluded, and he urged operators to ask their suppliers about adherence to the standards and assurance of interoperability.

In a brief question-and-answer session following the second session, an operator asked about the sales lift that can be expected from offering a cashless payment option. USAT's Lawlor replied that, overall, it has averaged 15% to 20%.

Another audience member asked whether two-tier pricing is "sustainable," or whether it is likely to be legislated out.

"Well, it was just legislated in," Lawlor quipped, noting that it had not been necessary in many retail applications before the increase in debit card transaction-processing fees triggered by the Durbin Amendment. "In fact, gas stations have used two-tier pricing for years. Yes, I do think it's sustainable."